As ARM shuns London, tech investors seek the UK as an IPO destination.

The UK may be a great place to build a tech company – but when it comes to taking the decisive steps to get your business afloat, the picture isn’t so pretty.

That’s the lesson many high-tech businesses in London have come to learn.

In the year By the time Deliveroo went public in 2021, at the peak of pandemic-driven food delivery, the company’s stock had quickly risen to 30%.

Investors have largely blamed the legally uncertain nature of Deliveroo’s business — the company relies on couriers on gig contracts to deliver food and groceries to customers. That is a concern when these workers seek minimum wages and other benefits to be recognized as workers.

But for many tech investors, another, more strategic, factor was at play – and chip design giant Arm’s decision to eschew a UK listing in favor of first-party US market competition was cited as a reason.

Many venture capitalists say that the institutional investors who dominate the London market do not have a good understanding of technology.

“It’s not the exchange, it’s the people trading on the exchange,” Hussain Kanji, founding partner of London VC firm Hoxton Ventures, told CNBC. “I think they’re looking for dividend stocks, not high growth stocks.”

“Two years ago you could have said, you know what, it could be different, or just take a chance. Now a lot of people have taken a chance and the answers have come back. It’s not the right decision.”

In the year A number of tech companies listed on the London Stock Exchange in 2021, in moves that investors hope will see more major tech names start to feature in the blue-chip FTSE 100 benchmark.

But firms that have gone this route have seen their shares penalized as a result. Since Deliveroo’s March 2021 IPO, the company’s shares have fallen dramatically, falling more than 70% from the £3.90 they bought the shares at.

Wise, the UK money transfer business, has fallen more than 40% since its 2021 direct listing.

There were some outsiders, such as cyber security firm Darktrace, whose shares rose 16 percent from their list price.

However, the broad consensus is that London has failed to attract some of the tech giants that are household names to major US stock indexes such as the Nasdaq – and Arm is opting to launch in the US rather than the UK, some fear. Let this trend continue.

“It’s a well-known fact that London is a very troubled market,” Harry Nellis, general partner at VC firm Accel, told CNBC.

“London is creating, and the UK is creating globally important businesses – it’s an internationally important business. The issue is that London’s capital market is not efficient, basically.”

The London Stock Exchange was not immediately available for comment when contacted by CNBC.

Brexit also clouded the outlook for tech specs.

Funds raised by London-listed companies are set to fall by more than 90 percent by 2022, according to KPMG research, as slowing economic growth, rising interest rates, and uncertainty around the performance of British companies have weighed on the market.

Previously published figures for the first nine months of 2022 indicated that European funds had fallen by between 76% and 80%, a less drastic fall than the UK’s 93%.

Hermann Hauser, who was instrumental in the development of the first ARM processor, has blamed the company’s decision to list in the UK on the “stupidity” of Brexit.

“The reality is that New York is a much deeper market than London, partly because of the Brexit folly, London’s image has suffered a lot in the international community,” he told the BBC.

The Cambridge headquarters is often referred to as the “crown jewel” of UK technology. Its chip architecture is used in 95% of the world’s smartphones.

In the year SoftBank, which bought Arm in 2016 for $32 billion, is looking to float the company in New York after failing to sell the company to US chipmaker giant Nvidia for $40 billion.

Three British Prime Ministers tried to list it in London, but Arm chose to pursue a listing on the US stock market. It filed for a US stock market listing last week.

Research and development for chip chips is a costly undertaking, and Japan’s SoftBank hopes to recoup its seismic investment in Arm through the listing.

Arm expects to bring in roughly $8 billion in revenue and $30 billion to $70 billion in revenue, Reuters reported, citing people familiar with the matter.

Arm said he would eventually like to pursue a second tier, listing his stake in the UK following the US listing.

Still, regulators have sought to attract technology companies to the UK market.

In December, the government unveiled reforms intended to lure high-growth tech companies. Measures include allowing firms to issue dual-tier shares – which give entrepreneurs more control and are attractive on the primary market.

Last week, the Financial Conduct Authority proposed to simplify the list of regular and premium equity classes for shares of trading companies as one category.

This would remove eligibility requirements that restrict early-stage firms, allow more two-tier structures, and eliminate mandatory shareholder votes on acquisitions, the regulator said.

Despite the negative implications of Arm’s decision, investors remain bullish on London’s prospects as a global technology hub.

“Fortunately for us, it’s not that the UK is unattractive to investors,” Nellis told CNBC. “This means that where you have an IPO, it’s just a financial arrangement. It’s just a place, a place where you can get a lot of money to grow.”